The BTC/USD pair broke above $29,800 on May 6, but the tide quickly changed as the resistance proved stronger than anticipated.
The subsequent 8.2% two-day correction tested $27,400 support, favoring the thesis of sideways trading as investors evaluate the economic crisis dynamic and its potential impact on cryptocurrencies.
Meanwhile, Berkshire Hathaway owner and billionaire investor Warren Buffett is no longer optimistic about the U.S. economy’s growth. Such a pessimistic scenario for the global economy might explain why some Bitcoin traders decided to reduce exposure over the past week, greatly reducing the odds of breaking $30,000.
Bitcoin options: bulls were excessively optimistic
The open interest for the May 12 options expiry is $900 million, but the actual figure will be lower since bears were expecting sub-$28,000 price levels.
These traders got excessively optimistic after Bitcoin’s price rallied 11.2% between April 9 and April 14, testing the $31,000 resistance.
The 1.65 call-to-put ratio reflects the imbalance between the $560 million in call (buy) open interest and the $340 million in put (sell) options.
But if Bitcoin’s price remains near $27,500 at 8:00 am UTC on May 12, only $11 million worth of these call (buy) options will be available. This difference happens because the right to buy Bitcoin at $28,000 or $29,000 is useless if BTC trades below that level on expiry.
Bitcoin bulls aim for $28,000 to balance the scales
Below are the four most likely scenarios based on the current price action. The number of options contracts available on May 12 for call (bull) and put (bear) instruments varies, depending on the expiry price.
The imbalance favoring each side constitutes the theoretical profit:
Between $25,000 and $27,000: 100 calls vs. 9,900 puts. Bears in total control, profiting $230 million.
Between $27,000 and $28,000: 400 calls vs. 5,000 puts. The net result favors the put (sell) instruments by $120 million.
Between $28,000 and $29,000: 1,500 calls vs. 2,100 puts. The result is balanced between put and call options.
Between $29,000 and $30,000: 3,300 calls vs. 800 puts. The net result favors the call (bull) instruments by $70 million.
This crude estimate considers the call options used in bullish bets and the put options exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.
For instance, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price. Unfortunately, there’s no easy way to estimate this effect.
Ultimately, after it became clear that the Bitcoin network was working as designed, the selling pressure dissipated, causing Bitcoin’s price to stabilize around $27,500. Nevertheless, traders should be cautious as the bears are still in a better position for Friday’s weekly options expiry, favoring negative price moves.